Surprising Insights From HubSpot's $35M Mezzanine Round
Roham Gharegozlou stashed this in Venture Capital
I wish this was a Quora post so other folks could chime in with their experiences.. A PandaWhale stash could be even better.
"Private Equity: .... My sense is that they want to be involved and are value-add."
Ya think? :-)
Geege, that's not always the case. Some Private Equity prides itself on being hands-off.
I'd agree that some are arm's-length.
But you're the expert.
To your point, there are very few who invest and then tune out.
Roham, thank you for stashing this.
Brian Halligan is actually quite thoughtful about why he chose public funding:
Public investors can “recycle” their capital while most venture funds can’t really do that easily. Huh? If Fidelity gets a 70% return on their investment in your company in a year and a half, they are pretty happy -- they can turn around and reinvest that money into other stocks. If Accel gets a 70% return on their investment in a year and a half, they are actually pretty unhappy -- they need to return that 70% to their investors and can’t really reinvest it. In order for venture funds to make their math work, they need to get a 3X return on their investment.
It really makes me wonder why Early Stage VCs are determined to play the Late Stage Growth game.
Can you explain?
Couple reasons Adam:
1) establish brand value: by associating with a clear success story you get to bask in their limelight. and frankly, much less (perceived) risk of a total loss esp. as compared to half-baked seed deals.
2) LP preference: many LPs prefer lower risk, later stage. as an early stage fund proves its ability to access good deals and return value to investors, they will have demand from LPs to accept higher amounts of capital for later stage investments.
the lower return profile is therefore expected and in some cases desired.
Roham, that makes sense as long as the LPs are comfortable with that asset class and the venture firm is comfortable diluting its brand so early stage entrepreneurs aren't confused as to whether that firm actually does early stage deals.
"It turns out that the terms from your Series A are most often cut and pasted into your later round deals. When you compromise on terms in the early stages, you will have to pay the price in the later stages. You generally don’t start from scratch and rehash the terms."
This is SO TRUE -- if by "terms" the author means things like board seats and how certain kinds of issues get decided, rather than by the monetary valuation stuff. Not understanding the nuts and bolts of governance is one major way that new entrepreneurs constantly screw themselves -- in fact I might say it's THE major way. We are constantly telling 106 Miles people that they really need to read those long boring shareholder agreements and understand them!!!
All the more reason to make sure you have a good lawyer.